AJ Bell warns on over-valued Reckitt Benckiser

Analyst Russ Mould said a return to sales growth in the fourth quarter did nothing to convince investors as the stock tumbled over 6% to £61.52 yesterday. The shares have declined from a peak of near £81 last summer when they traded at 22 times earnings.

‘The problem may not be the numbers themselves, but the tepid sales growth guidance for 2018 and the reliance on cost-cutting for earnings surprises… as neither help to support a valuation that already represents a big premium to the wider UK market,’ he said.

‘Reckitt’s brand strength, lofty margins, and record of consistent profit and dividend growth can justify a premium rating to some degree but using acquisitions to fuel growth raises the risks involved and lowers the quality of earnings,’ said Mould.

He added that the company could also become involved in an auction of the healthcare operations of Pfizer, which has a rumoured $20 billion price tag, just a year after its Mead Johnson deal increased net debt from £1.4 billion to £10.7 billion ‘and the cost of borrowing has finally started to rise’.

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Jefferies upgrades Fidessa on margin clarity

Jefferies has upgraded Fidessa (FDSA) as it believes the financial markets software provider now has clarity on its ‘margin evolution’.

Analyst Vijay Anand raised his recommendation from ‘hold’ to ‘buy’ and increased his share price target from £24 to £31 after annual results came in ‘modesty ahead’ of expectations.

‘Full-year 2017 results signal the end of the investment phase in building out the derivatives business as well as getting its cash equities platform Mifid II ready,’ he said in reference to new European regulations introduced in January.

‘While Fidessa continues to target expansion into new markets, the limited visibility on such opportunities implies that we now expect earnings before interest and taxation margin to expand significantly, driving 12-13% earnings per share upgrades for 2019-2022. With the emergence of clarity on future margin evolution, we upgrade.’

The shares advanced over 5%, or 140p, to £27.45 on Monday.

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Shore Capital backs margin growth at Spectris

Analyst Ben McSkelly retained his ‘buy’ recommendation after full-year results were ‘broadly in line’ with forecasts, with like-for-like revenues up 6% and operating profit before Uplift savings growing to £239 million from £204 million in 2016.

‘Our enthusiasm for Spectris’ shares has been motivated by a belief that the group should, and can, build operating margins into the high teens,’ he said.

‘In the short term, lack of further investment will aid results, but we believe the market is looking for momentum in Uplift.’

McSkelly added: ‘Following the sale of Microscan, the company has announced a £100 million buyback programme. We expect to move our Uplift cost and benefit assumptions, while tweaking underlying growth and await management guidance on currency tailwinds, given the strengthening of sterling.’

The shares rallied 3.5%, or 93p, to £27.40.

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Buy Convatec for recovery, says Share Centre

Strong full-year results from medical technology company Convatec (CTEC) boosted the shares but they are still a ‘long way’ from their highs and remain a buying opportunity, believes The Share Centre.

Analyst Helal Miah retained his ‘buy’ recommendation for ‘investors seeking a recovery potential and willing to accept a higher level of risk’ following last week’s results saw the shares rally 7%. They dipped 1%, or 2.3p, to 213p on Monday.

‘Overall the group has shown some positive progress, it operates in a defensive market with significant growth opportunities,’ said Miah.

‘While the shares are a long way off from its highs, we believe this is a growth opportunity to pick up these shares for the long term.’

He added that the underlying market for Convatec is ‘defensive in nature, but growth opportunities exist from ageing populations, the increased prevalence of chronic conditions, and the fact that patients are living longer with these conditions’.

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Gleeson now fairly valued, says Peel Hunt

Shares in housebuilder Gleeson (GLEG) have fallen 10% this year but are still trading at a premium to the sector average, says Peel Hunt.

Analyst Alex Stout retained his ‘hold’ recommendation and target price of 715p, which factors in 4% upside, following a ‘solid set’ of interim results. The shares gained 4.7%, or 33p, to 723p on Monday.

‘The outlook for the business remains good, driven by strong demand for its affordable homes,’ said Stout. ‘With good land availability we expect Gleeson to achieve its 2,000 unit completion target well within five years.’

AJ Bell warns on over-valued Reckitt Benckiser

Analyst Russ Mould said a return to sales growth in the fourth quarter did nothing to convince investors as the stock tumbled over 6% to £61.52 yesterday. The shares have declined from a peak of near £81 last summer when they traded at 22 times earnings.

‘The problem may not be the numbers themselves, but the tepid sales growth guidance for 2018 and the reliance on cost-cutting for earnings surprises… as neither help to support a valuation that already represents a big premium to the wider UK market,’ he said.

‘Reckitt’s brand strength, lofty margins, and record of consistent profit and dividend growth can justify a premium rating to some degree but using acquisitions to fuel growth raises the risks involved and lowers the quality of earnings,’ said Mould.

He added that the company could also become involved in an auction of the healthcare operations of Pfizer, which has a rumoured $20 billion price tag, just a year after its Mead Johnson deal increased net debt from £1.4 billion to £10.7 billion ‘and the cost of borrowing has finally started to rise’.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Jefferies upgrades Fidessa on margin clarity

Jefferies has upgraded Fidessa (FDSA) as it believes the financial markets software provider now has clarity on its ‘margin evolution’.

Analyst Vijay Anand raised his recommendation from ‘hold’ to ‘buy’ and increased his share price target from £24 to £31 after annual results came in ‘modesty ahead’ of expectations.

‘Full-year 2017 results signal the end of the investment phase in building out the derivatives business as well as getting its cash equities platform Mifid II ready,’ he said in reference to new European regulations introduced in January.

‘While Fidessa continues to target expansion into new markets, the limited visibility on such opportunities implies that we now expect earnings before interest and taxation margin to expand significantly, driving 12-13% earnings per share upgrades for 2019-2022. With the emergence of clarity on future margin evolution, we upgrade.’

The shares advanced over 5%, or 140p, to £27.45 on Monday.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Shore Capital backs margin growth at Spectris

Analyst Ben McSkelly retained his ‘buy’ recommendation after full-year results were ‘broadly in line’ with forecasts, with like-for-like revenues up 6% and operating profit before Uplift savings growing to £239 million from £204 million in 2016.

‘Our enthusiasm for Spectris’ shares has been motivated by a belief that the group should, and can, build operating margins into the high teens,’ he said.

‘In the short term, lack of further investment will aid results, but we believe the market is looking for momentum in Uplift.’

McSkelly added: ‘Following the sale of Microscan, the company has announced a £100 million buyback programme. We expect to move our Uplift cost and benefit assumptions, while tweaking underlying growth and await management guidance on currency tailwinds, given the strengthening of sterling.’

The shares rallied 3.5%, or 93p, to £27.40.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Buy Convatec for recovery, says Share Centre

Strong full-year results from medical technology company Convatec (CTEC) boosted the shares but they are still a ‘long way’ from their highs and remain a buying opportunity, believes The Share Centre.

Analyst Helal Miah retained his ‘buy’ recommendation for ‘investors seeking a recovery potential and willing to accept a higher level of risk’ following last week’s results saw the shares rally 7%. They dipped 1%, or 2.3p, to 213p on Monday.

‘Overall the group has shown some positive progress, it operates in a defensive market with significant growth opportunities,’ said Miah.

‘While the shares are a long way off from its highs, we believe this is a growth opportunity to pick up these shares for the long term.’

He added that the underlying market for Convatec is ‘defensive in nature, but growth opportunities exist from ageing populations, the increased prevalence of chronic conditions, and the fact that patients are living longer with these conditions’.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.

Gleeson now fairly valued, says Peel Hunt

Shares in housebuilder Gleeson (GLEG) have fallen 10% this year but are still trading at a premium to the sector average, says Peel Hunt.

Analyst Alex Stout retained his ‘hold’ recommendation and target price of 715p, which factors in 4% upside, following a ‘solid set’ of interim results. The shares gained 4.7%, or 33p, to 723p on Monday.

‘The outlook for the business remains good, driven by strong demand for its affordable homes,’ said Stout. ‘With good land availability we expect Gleeson to achieve its 2,000 unit completion target well within five years.’

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